1. THEORY OF DEMAND & SUPPLY

2. DEFINITION AND LAW OF DEMAND
WHAT IS DEMAND?
→ DEMAND IS THE DESIRE TO OWN ANYTHING, THE ABILITY TO PAY FOR IT, AND THE WILLINGNESS TO PAY DURING A SPECIFIC PERIOD

3. DEMAND SCHEDULE AND DEMAND CURVE
→ A LIST SHOWING THE QUANTITY OF A GOOD THAT CONSUMERS WOULD CHOOSE TO PURCHASE AT DIFFERENCES PRICES, WITH ALL OTHER VARIABLES HELD CONSTANT
DEMAND CURVE:
→ GRAPHICALLY SHOWS THE RELATIONSHIPS BETWEEN THE PRICE OF A GOOD AND THE QUANTITY WITH ALL DEMANDED, HOLDING CONSTANT ALL OTHER VARIABLES THAT INFLUENCES DEMAND.

4. DEFINITION AND LAW OF DEMAND
→ THE LAW OF DEMAND STATES THAT OTHER FACTORS BEING CONSTANT, PRICE AND QUANTITY OF DEMAND OF ANY GOOD AND SERVICE ARE INVERSELY RELATED TO EACH OTHER. WHEN THE PRICE OF THE PRODUCT INCREASES, THE DEMAND FOR THE SAME PRODUCT WILL FALL.

6. Guided Practice 1: let’s draw and graph a demand schedule & curve for pizza
Price of pizza
a $15
b $12
c $9
d $6
e $3
Quantity of pizza demanded
(millions per week) 8 14 20 26 32

8. key: DEMAND SCHEDULE & CURVE FOR PIZZA
Price (P)
(Per pizza)
$15
$12 $9 $6 $3 8 14 20 26 32
Demand (Q)
(In millions per week)

9. Self-Practice Act 1: Draw and graph a demand schedule & curve for ice-cream
Price of Ice-cream cone
a $0.25
b $0.50
c $1.00
d $1.50
e $2.00
f $2.50
g $3.00
Quantity of cones demanded 12 10 8 6 4 2 1

10. ASSUMPTIONS AND LIMITATIONS OF THE LAW OF DEMAND
INCOME CONSTANT.
NO CHANGE IN TASTE, FASHION AND HABIT.
NO FUTURE EXPECTATIONS.
NO CHANGE IN WEATHER AND POPULATIONS.
LIMITATIONS:
VERY HIGH PRICED GOODS
VERY LOW PRICED GOODS
IGNORANCE OF THE CONSUMER
NECESSITIES

11. DETERMINANTS OF DEMAND
TASTES AND FASHIONS
THE NUMBER AND PRICE OF RELATED GOODS
INCOMES
EXPECTATIONS OF FUTURE PRICE CHANGE
POPULATIONS
WEATHER

12. DISTINCTION BETWEEN CHANGES IN QUANTITY DEMANDED AND CHANGES AND DEMAND
CHANGE IN QUANTITY DEMANDED
OCCURS DUE TO CHANGE IN PRICE
RESULTS IN MOVEMENT FROM ONE POINT TO ANOTHER ON A FIXED DEMAND CURVE
ALSO CALLED EXTENSION AND CONTRACTION OF DEMAND
CHANGE IN DEMAND
OCCURS DUE TO CHANGE IN DETERMINANTS OTHER THAN PRICE
RESULTS IN SHIFTING OF THE DEMAND CURVE EITHER TO THE RIGHT OR TO THE LEFT
ALSO CALLED RISE AND FALL OF DEMAND

13. PRICE ELASTICITY OF DEMAND
A MEASURE OF THE RELATIONSHIP BETWEEN CHANGES IN THE QUANTITY DEMANDED OF A PARTICULAR GOOD AND A CHANGE IN ITS PRICE.
ELASTICITY MEASURES THE RELATIONSHIP BETWEEN A GOOD AND ITS PRICE BASED ON CONSUMER DEMAND, CONSUMER INCOME AND ITS AVAILABLE SUPPLY.

14. DETERMINANTS OF PRICE ELASTICITY OF DEMAND
THE DEGREE OF NECESSITY OR WHETHER THE GOOD IS A LUXURY > NECESSITIES TEND TO HAVE AN INELASTIC DEMAND WHEREAS LUXURIES TEND TO HAVE A MORE ELASTIC DEMAND.
THE PROPORTION OF A CONSUMER INCOME ALLOCATED TO SPENDING ON THE GOOD > PRODUCTS THAT TAKE UP A HIGH PERCENT OF INCOME WILL HAVE A MORE ELASTIC DEMAND.

15. Summary
DEMAND
$ Down
$ Up
SUPPLY
$ Up
$ Down

16. DEFINITION OF SUPPLY AND EXPLANATION OF SUPPLY CURVE
WHAT IS SUPPLY?
→ALL OTHER FACTORS BEING EQUAL, AS THE PRICE OF A GOOD OR SERVICE INCREASES, THE QUANTITY OF GOODS AND SERVICES THAT SUPPLIERS OFFER WILL INCREASE, AND VICE VERSA.

17. DEFINITION OF SUPPLY AND EXPLANATION OF SUPPLY CURVE
→THE GRAPHICAL REPRESENTATION OF THE RELATION BETWEEN THE QUANTITIES SUPPLY OF A GOOD THAT PRODUCERS ARE WILLING AND ABLE TO SELL AND THE PRICE OF THE GOOD
→GRAPH CURVE THAT NORMALLY SLOPES UPWARD TO THE RIGHT OF THE CHART, SHOWING THE QUANTITY OF THE PRODUCT SUPPLIED AT DIFFERENT PRICE LEVELS

18. EXAMPLE OF SUPPLY CURVE

19. DETERMINANT OF SUPPLY PRODUCTION COST TECHNOLOGY NUMBER OF SELLERS
EXPECTATION

20. Guided Practice 2: let’s draw and graph a SUPPLY schedule & curve for soda
Price (P) of soda
e $2.50
d $2.00
c $1.50
b $1.00
a $0.50
Quantity (Q) of sodas supplied
(millions per week) 35 25 15 10 5

22. DIFFERENCES BETWEEN CHANGES IN QUANTITY SUPPLIED AND CHANGES IN SUPPLY
OCCURS DUE TO CHANGE IN THE MARKET PRICE
IS REPRESENTED BY MOVEMENT FROM ONE POINT TO ANOTHER ON THE SAME SUPPLY CURVE
ALSO CALLED EXTENSION AND CONTRACTION OF SUPPLY
CHANGES IN SUPPLY
OCCURS DUE TO CHANGE IN DETERMINANTS OF SUPPLY OTHER THAN PRICE
IS REPRESENTED BY A SHIFT IN THE SUPPLY CURVE EITHER TO THE RIGHT OR TO THE LEFT
ALSO CALLED RISE AND FALL IN SUPPLY

23. Self-Practice Act 2: Draw and graph a supply schedule & curve for tires
Price (P) of tire
a $500
b $300
c $250
d $200
e $150
d $100
f $50
Quantity (Q) of tires supplied (thousands per month)
100 80 60 50 40 20 5

24. PRICE ELASTICITY OF SUPPLY
MEASURE THE RELATIONSHIP BETWEEN CHANGE IN THE QUANTITY SUPPLIED AND A CHANGE IN PRICE.
MEASURE THE RATE OF RESPONSE OF QUALITY DEMAND DUE TO PRICE CHANGE

25. DETERMINANTS OF PRICE ELASTICITY OF SUPPLY
THE PRICE ELASTICITY OF SUPPLY DESCRIBES THE MAGNITUDE OF THE CHANGE IN QUANTITY SUPPLIED TO A CHANGE IN PRICE
MEASURE THE RESPONSIVENESS OF QUANTITY SUPPLIED TO A CHANGE IN THE PRODUCT PRICES

26. DETERMINANTS OF PRICE ELASTICITY OF SUPPLY
THE MAIN FACTORS WHICH DETERMINE THE DEGREE OF PRICE ELASTICITY OF SUPPLY:
→TIME PERIOD
→ABILITY TO STORE OUTPUT
→FACTOR MOBILITY

27. Conclusion
DEMAND:
$ Down
$ Up
SUPPLY:
$ Up
$ Down

28. DEMAND: as P+, Q- as P-, Q+ SUPPLY: as P-, Q- as P+, Q+ Conclusion
D & S summary video

29. THE END
THANK YOU ☺

30. Have a great day☺ Classwork 8 Business Organizations
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31. Explain the law of demand Explain the law of supply
Pop Quiz
Explain the law of demand
Explain the law of supply
Draw a curve for the following demand schedule
*Draw your own graph and be sure to show P and Q